Achieving net-zero carbon emissions by 2050 will require low-carbon hydrogen, as well as carbon capture, utilization, and storage (CCUS) methods. However, the price tag for adopting these fuel alternatives and technologies comes to billions of dollars. Boston Consulting Group professionals assess the current and future landscape for CCUS and low-carbon hydrogen financing, and they examine the risks and rewards for investors, who will find some valuable insights in this thorough study.
- Low-carbon hydrogen and carbon capture, utilization, and storage (CCUS) technologies are integral to achieving a net-zero-emissions future.
- Different risk parameters are deterring banks from actively funding low-carbon hydrogen and CCUS projects.
- In the United States and European Union, regulations and financial incentives for these dual technologies will reduce their risk profile and spur greater capital investment.
Low-carbon hydrogen and carbon capture, utilization and storage (CCUS) technologies are integral to achieving a net-zero-emissions future.
Industry leaders seeking to meet the International Energy Agency’s goal of net-zero emissions by 2050 will need to adopt low-carbon hydrogen, along with carbon capture, utilization, and storage (CCUS) innovations. However, experts forecast that paying the bill to enable and integrate these technologies could require $13 trillion in non-government investment.
“Any hope of reaching net-zero global emissions rests on decarbonizing hard-to-abate sectors such as power, industry, heating and transportation.”
Financing from capital markets and banks is critical to ensuring that carbon mitigation initiatives move forward. Unfortunately, capital providers have not yet deployed funds into CCUS and low-carbon hydrogen projects at sufficient scale and scope. Some 80% of announced low-carbon hydrogen projects are still in the strategy phase, and just 7% of CCUS have reached a financing decision stage.
Different risk parameters are deterring banks from actively funding low-carbon hydrogen and CCUS projects.
The banking sector will shoulder much of the heavy lifting for these projects: specifically, some $10 trillion for low-carbon hydrogen and $3 trillion for CCUS. Together, these innovations could represent 10% of banking institutions’ energy lending portfolios by 2030.
“While commercial banks are keen to finance hydrogen and CCUS projects – both to support their clients and meet their own sustainability targets – they are holding back because of the perceived risks involved.”
Currently, though, banks are slow in funding this sector because the risk management profiles of these projects do not yet align with existing lending protocols for alternative energy, such as those for solar and wind. Low-carbon hydrogen and CCUS are relatively new technologies, and their markets are still forming. A supply-demand imbalance between producers and consumers of hydrogen, as well as the inability of suppliers of low-carbon hydrogen and CCUS to sell their energy to electric grids, are keeping banks on the sidelines.
In the United States and European Union, regulations and financial incentives for these dual technologies will reduce their risk profile and spur greater capital investment.
Banking executives believe that, by 2030, the risk-adjusted returns of CCUS and low-carbon hydrogen investments will approach those of solar and wind. Banks that deploy capital now in projects will seize important first-mover advantages.
“Over time, many more projects will come to match the risk profile banks are looking for and become ‘bankable’.”
Banks will have to structure deals in creative ways, including through mezzanine financing, equity investments and strategic partnerships. Financial institutions should develop their own blueprints for financing and not apply a one-size-fits-all approach. The interests of all stakeholders, including project developers, must align. CCUS and low-carbon hydrogen are crucial parts of the net-zero future, and banks and capital providers who act assertively will benefit from the financial returns.
About the Authors
Eriola Beetz et al. are Boston Consulting Group professionals.